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Increasing External Debt And Electoral Cycles In Emerging Markets: How Do They Affect Prospects For Long-Term Growth? (Vox Lacea)

February 22, 2018

From the article:

Recently, the World Bank published its latest Global Economic Prospects report (GEP), which highlights a welcomed cyclical recovery for all major regions of the world following recent slow growth. I was pleased to participate in a panel discussion at CGD analyzing the report’s findings, and to share my perspectives both on its implications and on future global outlooks - especially for emerging market and developing economies (EMDEs).

Although short-term growth prospects have improved for EMDEs, with an expected average of 4.5 percent for 2018 and 4.7 percent for 2019 and 2020, the report stresses that this is no time for complacency. Despite improving economic activity, potential long-term growth is predicted to extend its decade-long falling trend in these economies. Undoubtedly, this impedes the likelihood of any foreseeable convergence of per capita income with those of advanced economies. So then, what should policymakers in EMDEs do? The answer is straightforward: they should implement proper reforms to improve potential growth. As the GEP report emphasizes, the right policies should aim to boost human and physical capital and improve productivity through reforms in infrastructure, education, health systems, labor markets, governance, and business climate.

The question then becomes, how likely is it that these necessary reforms - to improve productivity and convergence prospects - will materialize? The answer depends on two factors: the capacity and the willingness of policymakers to pursue proper reforms.